The proposed merger between SunTrust and BB&T makes sense for both firms -- which is why Wall Street sent both stocks higher Thursday after the announcement. But employees of the two banks, especially older workers who are not yet retirement age, are understandably less enthused at the prospect of downsizing. In a nation with almost 37 million workers over the age of 55, the quandary of SunTrust-BB&T workforce will become increasingly familiar across the US economy.

This merger isn’t born out of froth and exuberance, but pragmatism. Big banks like JPMorgan are spending billions of dollars a year on technology. Smaller banks like SunTrust and BB&T have to spend on technology to stay relevant, but don’t have the budgets that bigger banks do. It stands to reason that a combined entity could spend on technology upgrades more efficiently and effectively than the two banks individually.

But pooling IT budgets isn’t the only value of the merger: “Synergies,” meaning headcount reductions, are going to be part of it too. The companies said the merger will result in at least $1.6 billion in annual cost savings by 2022. That money can be used both for technology investments and to return more capital to shareholders.

Big banks have been shrinking their staff since the financial crisis, and that’s most likely led to a different workforce composition at banks. SunTrust’s headcount peaked at over 34,000 in 2006, and today is just under 24,000. Shrinking firms tend to have an older employee base than younger firms -- think IBM versus Snapchat.

Firms can shrink in a variety of ways, but one is cutting hiring and letting natural attrition lead to a headcount reduction as employees retire or leave for other jobs. When this goes on for too long, firms and industries are left with a smaller, older employee base that isn’t well-positioned for the future. A version of this challenge is confronting the financial industry after a decade of job cuts, during which Silicon Valley has been a more attractive career path for young people than banking.

As SunTrust and BB&T, and banks more generally, think about the next decade, they know they’re going to have to replace their aging workforce with younger workers. Why not use a merger to accelerate the process and offer to buy out or cut older workers who would be expected to retire soon anyway?

But what’s good for the firms isn’t good for all of the workers. Older workers often struggle to get rehired as easily as younger workers. Age discrimination is a well-known problem in corporate America. What’s a 60-year-old back office worker supposed to do if downsized in a merger? The BB&T-SunTrust prospect highlights the need for a new type of unemployment insurance for some of the workforce.

One policy might be treating unemployed older workers differently than younger workers. Giving them unemployment benefits for a longer period of time than younger workers would be one idea, as well as accelerating the age of Medicare eligibility for downsized employees over the age of 55. The latter idea would help younger workers as well, by encouraging older workers to accept buyout packages -- freeing up career opportunities for younger workers.

The economy can be callous toward older workers, but policymakers don’t have to be. We should think about ways of dealing with this shift in the labor market before it happens.


Conor Sen
Conor Sen is a Bloomberg Opinion columnist. He is a portfolio manager for New River Investments in Atlanta and has been a contributor to the Atlantic and Business Insider. -- Ed.

(Bloomberg)